Obtaining 4 mortgage offers; does
it benefit you or the lenders?
Should You Have Lenders Bid for Your Loan?
I’m sure you’ve seen
the TV ads where a bunch of mortgage loan officers are waiting to make their presentations
to a couple of homeowners. It looks pretty inviting to get personal attention
from executive types, doesn’t it? The question this poses to consumers is, “Is
this a valid way of finding a lender?” As usual, the TV advertising differs markedly
from reality, so let’s discuss how lenders market their services.
Some
big, national lenders have good name recognition, a strong consumer franchise, and a large
market share. They rely primarily on their base of depositors for business,
people who are inclined to do business with “their bank.” Of course, many people
do not have such an ingrained sense of loyalty to their banks. They are the
shoppers that the rest of the industry tries to capture. That almost certainly
includes you, so let’s see how lenders look at you.
First, in spite of your desire
for privacy, you should understand that information on you, your address, and your current
loan were made a matter of public record when you bought your home or refinanced.
Companies collect those data and lenders are willing to pay them for
packaging it for them. One industry leader describes their service as a “powerful
Internet-delivered customer acquisition tool.”
The
purpose of the lender’s marketing program is to get the phone to ring, so that one of
their representatives can give you a sales pitch. One method is direct mail
advertising. A lender buys leads and sends you a letter. Your mailbox probably
looks like mine, with a new solicitation almost every day.
Others use telemarketing,
phoning you just as you sit down to dinner. One lender admitted to me that
their new strategy is to phone during the day, hoping to get an answering machine. They
know that 99 percent of people do not want to talk with them, so it is far, far more
productive for them to talk only with those people who call them back.
Finally, Internet lenders have been throwing a lot of money at marketing. Advertising
really low rates – whether they really exist or not – can make the phone
ring.
One lender claims to get over
1,000 phone calls a day.
The
problem with this type of marketing is that the percentage of prospects who respond is
very small, and those who actually stay with the process until their loan funds is even
lower. Depending on whom you talk with, the numbers vary between 2 percent and 4 percent,
and that’s just the people with whom they actually talk.
You
can see that a lender would be willing to pay more money for leads with a higher
percentage of closing. That’s where the auction website comes in. A
lender who signs up for the service gets leads to people who are actively engaged in
mortgage shopping as opposed to just a list of homeowners. Importantly, the
lenders also get a lot of additional private information. Many people who get angry when
the DMV sells their name, willing volunteer information that most people wouldn’t
dream of sharing with strangers, like their bank account balance and their Social Security
Numbers, so they lenders can run a credit report.
In fact, the promise of
“getting multiple bids” amounts to nothing more than having your name and your
private information sold to 4 different lenders. The lenders can peruse your
data and see if it worthwhile to have their salesman call you and give you your
bid. To get these leads, lenders have to pay a minimum of $10,000 to become
part of the pool, and then pay an additional amount per lead. Finally, the website earns
another fee of several hundred dollars if you fund your loan with one of their lenders, a
fee that ultimately you have to pay.
Here’s a final
observation. No company is going to employ the executive types you saw on TV
to deal with customers. Talking to prospects over the phone is a minimum wage
job. You expect that when you call 800-ANYTHING, and it is also true here
also. At one of these lenders, your loan rep’s last job may have involved asking,
“Would you like fries with that?” My beliefs are that getting a mortgage is a
complicated financial process and that you can benefit from the help from an expert, and
you’re not going to get that from a customer service rep.
Bottom line, I wouldn’t
respond to any form of mass marketing. I’m sure that you can do a lot
better job of finding four different lenders yourself. Ask ten friends for referrals. One
of them will have dealt with a real hero, and that’s whom you should call.
©2003 Savvy Borrower, Randy Johnson
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